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The Irish economy is set for growth of over 5% this year, with upward momentum to continue into 2016, but further recovery could still be indirectly affected by China’s weakening economy.

“Ireland’s direct export exposure to China is low – 2% of total exports – but Ireland would be vulnerable to any severe sustained deterioration in global financial conditions that jeopardised the outlook for its key trading partners of the eurozone, US and UK,” said Simon Barry, chief economist for Ulster Bank in the Republic.

“Chinese macro-financial weakness is now the key near-term risk for the global economy, and is exerting a strongly negative influence over a range of areas in the financial markets,” he added.

Mr Barry was speaking on the back of Ulster Bank’s latest economic outlook for Ireland, in which it significantly upgraded its near-term forecasts for the country’s recovery.

“The growth trends, revealed by the latest figures on the Irish economy, are impressive and have prompted us to upgrade our assessment of the economy’s outlook for this year and next,” Mr Barry said.

Ulster Bank now sees the economy – in GDP terms – growing by 5.2% this year and by 4.5% in 2016. These forecasts are up from respective ones of 3.9% and 3.6% made in April. The bank is basing a lot of its thinking on recent indices, including the first quarter national accounts, indicating that momentum in export performance and domestic demand are continuing.

It added that better-than-anticipated economic growth should translate into a faster pace of jobs growth. Ulster is expecting to see jobs growth of 2.8% this year and 2.7% for 2016 – up from its previous forecasts of 2.1% and 2.2%, respectively.

“This forecast envisages that the economy will generate an additional 100,000 net new jobs over this year and next. This would result in a further decline in the unemployment rate to 8.4%, on average,” said to Mr Barry.

He added the country’s improving economic health leaves room for a further modest stimulus in the October Budget. “There is merit in using at least some of the additional fiscal space to boost capital spending.”

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